NEW DELHI: Mahindra & Mahindra (M&M) said Friday that they are in talks with an investor who could sell most of South Korea’s arm SsangYong motor company (SYMC) has already filed for bankruptcy, and plans to sign a non – binding agreement next week.
The Mumbai-based leading automotive company, which currently holds nearly 75 percent of the Korean company, expects to complete the deal by the end of February.
“We are in contact with a potential investor for a majority interest in SsangYong. We hope to complete the term page with the investor sometime next week,” M&M managing director Pawan Goenka told reporters at a keynote press conference.
On December 21, the homegrown automaker announced that SYMC had filed for bankruptcy.
The loss-making company has filed a claim for initiation of a restitution procedure with the Seoul Bankruptcy Court under the South Korea Debt Recovery and Bankruptcy Act.
The troubled automaker has also applied for an automated restructuring assistance (ARS) program that is a court-designed process.
“Under the ARS scheme the court allows the company to find a solution on their own in a specified time and during this time the company is governed by its ruling and the court does not go to court. involved, “Goenka said.
He added: “The court has awarded ARS to SYMC and the deadline is February 28, so we have two more months from now to conclude a contract with the investor.”
If the agreement expires, things will continue as normal and if the contract does not happen SYMC will go into court disposal and the court assumes its ruling, Goenka noted.
“March 1 will be announced and we hope to complete the contract with the investor in this two month period. If the agreement goes through, the majority will be owned by the new investor, Mahindra will be in a minority with about 30 percent or less and the company will make a 25 percent capital reduction allowed under RBI management, “he said.
Goenka also noted that the SYMC trade union is supportive of the ARS process.
But he did not sign the investor with whom the talks were going.
Preparing longer, Mahindra Group Anish Shah, deputy director of management and CFO Group, said the company was hopeful a buyer could come in and continue SsangYong operations.
“If that does not happen, the company will go through pre-packaging recovery and there may also be other options but in all cases from an M&M perspective we would cease to be a major shareholder by the end of this fiscal year,” he noted.
Commenting on finance involved with SYMC, he said: “We have around Rs 980 crore of equity, we have pledged Rs 680 crore of loans from foreign banks and 40 billion Korean wons (around Rs 270 crore) we have already applied for loans. So, Rs 980 crore of equity and Rs 950 crore on debt. ”
The amount of potential for cancellation will depend on the situation, Shah said.
SYMC has reasonable assets and therefore should be able to support both debt equity, he noted.
“M&M has no other responsibilities other than the equality and debt numbers we share,” said Shah.
In December 2020, M&M had informed the courses that SYMC had been missing out on loan repayments amounting to 60 billion Korean wons (around Rs 408 crore).
Outstanding loans at the Korean automaker amount to 100 billion Korean wons (around Rs 680 crore) from Seoul-based branches of JP Morgan Chase Bank, BNP Paribas and Bank of America.
Already, JP Morgan has repaid a loan worth 40 billion Korean wons from SYMC and a South Korean automaker has said it is unable to repay the amount now.
In April last year, the M&M board rejected a proposal to introduce any new equity into SYMC.
The Mumbai-based automotive mainstay found the SsangYong which made a loss in 2010 but has not been successful since then despite several attempts.
Since then M&M has invested more than $ 110 million in the loss-making machine. SsangYong has been struggling with declining earnings since 2017 when it slipped into the red with a net loss of 66 billion wons compared to a net profit of 58 billion wons in 2016. In 2018, his net loss rose to 62 billion wons and then went to balloon to 341 billion wons in 2019.